Explanatory Brief: Deposit Insurance and Policy Owners’ Protection Schemes Bill and Insurance (Amendment) Bill
1 The Second Minister for Finance Mrs Lim Hwee Hua today moved the Deposit Insurance and Policy Owners’ Protection Schemes Bill (DI-PPF Bill) and the Insurance (Amendment) Bill for first reading in Parliament. The Bills will be read for a second time at the next available Parliamentary sitting.
2 The Deposit Insurance (DI) Scheme in Singapore was implemented in 2006 with the primary objective of protecting small depositors. The DI Scheme covers Singapore dollar deposits of individuals and charities in current, savings and fixed deposit accounts up to the DI coverage limit of S$20,000 per depositor per DI Scheme member1. Participation in the DI Scheme is mandatory for all retail deposit-taking institutions, i.e. full banks and finance companies in Singapore.
3 The Insurance Act provides for a Policy Owners’ Protection (PPF) Scheme to protect policy owners of life policies and compulsory insurance policies2 respectively. Currently, the PPF Scheme covers 90% of the liabilities for life policies and 100% of liabilities for compulsory insurance policies. PPF levy contributions would be collected from PPF member insurers only when there is a payout following an insurer’s default.
4 The current Deposit Insurance Act and the provisions on the PPF Scheme in the Insurance Act will be repealed, and the provisions on the DI and PPF Schemes moved into the DI-PPF Bill. This Bill will provide for enhanced DI and PPF Schemes to strengthen the protection of depositors and policy owners. Key provisions in the DI-PPF Bill are summarised in . The Insurance Act is also amended to strengthen the insurance regulatory framework to allow MAS to act swiftly when dealing with distressed insurers. Key provisions in the Insurance (Amendment) Bill are summarised in (21.5 KB). (21.8 KB)
5 MAS has consulted the industry and the public on the Bills and has taken into account feedback received in finalising them. The public consultation papers and MAS’ responses to feedback received are published on MAS’ website.
KEY MEASURES UNDER THE DI-PPF BILL
6 The coverage limit under the DI Scheme will be raised from S$20,000 to S$50,000 per depositor per DI Scheme member. The coverage will be expanded from insuring only individuals and charities, to insuring all non-bank depositors such as sole proprietorships, partnerships, companies and unincorporated entities. This is intended to mitigate potential cash flow problems of small business depositors in the event of a bank failure. The increased coverage will raise the proportion of insured depositors that are fully insured from 83% to 91%. The separate coverage of CPF-related monies will also be raised from S$20,000 to S$50,0003.
7 In the event of a payout, depositors will be paid the gross amount of their insured deposits up to the DI coverage limit, without first netting off their liabilities to the Scheme member. Depositors will therefore have quick access to the full amount of their insured deposits up to the coverage limit. The depositor still remains responsible for any liabilities owed to the Scheme member. The liquidator of the Scheme member will be empowered to recover this amount from the depositor.
Policy Owner Protection
8 The scope of coverage under the PPF Scheme will be expanded to cover accident and health (A&H) policies and additional classes of general insurance policies4. The enhanced PPF Scheme for life insurance will cover 100% (up from 90%) of protected liabilities up to the caps introduced.5 The increase in the level of coverage to 100% will help allay the concerns of policy owners, should they become anxious with rumours of a potential failure of an insurer and seek to cancel their policies, which may be to their detriment. Where the level of coverage is 90%, policy owners may believe that they are better off getting back 100% of their policies’ surrender values, rather than waiting for compensation under the PPF Scheme. If the insurer does not fail, policy owners who prematurely surrender their policies may not be able to obtain equivalent new insurance cover, for example, due to advanced age or deteriorating health. The introduction of the aggregate caps will create an incentive for policy owners to exercise prudence and market discipline in their selection of insurers and keep the PPF Scheme affordable at the same time. This approach is aligned to that under the DI Scheme, which provides 100% coverage up to a cap of S$50,000 per depositor. General insurance policies will be fully covered with no caps, as general insurance policies typically indemnify losses as they occur and payouts are made based on actual claims incurred.
9 The PPF Scheme will be operationalised as a pre-funded Scheme, with life insurers and general insurers paying levy contributions annually into the PPF Life Fund and PPF General Fund, respectively. The levy contribution structure and rates will be set out in regulations at a later date.
Singapore Deposit Insurance Corporation (SDIC)
10 The SDIC which currently administers the DI Scheme, will also administer the PPF Scheme. SDIC is a company limited by guarantee under the Companies Act, with the SDIC Board of Directors accountable to the Minister in charge of MAS.
11 SDIC will collect premium and levy contributions from DI and PPF Scheme members respectively, compensate insured depositors, insured policy owners and beneficiaries in the event of payout, and educate the public on the DI and PPF Schemes. SDIC will also manage the DI, PPF Life and PPF General Funds. These three funds will be maintained separately and no inter-fund lending will be allowed.
KEY MEASURES UNDER INSURANCE (AMENDMENT) BILL
12 The insurance regulatory framework will be strengthened to allow MAS to act swiftly when dealing with a distressed insurer, in order to preserve financial stability and protect policy owners. MAS will be able to take control of a distressed insurer and determine the sale or transfer of assets and liabilities, or ownership, of the insurer. For an insurer in liquidation, MAS will be able to approve the appointment of a liquidator.
1 An individual’s monies placed with a Scheme member under the CPF Investment Scheme (“CPFIS”) is separately covered under the DI Scheme up to S$20,000.
2 “Compulsory insurance policy” is defined in the Insurance Act as any policy or security which satisfies the requirements of the Motor Vehicles (Third Party Risks and Compensation) Act (Cap 189) or the Work Injury Compensation Act (Cap 354).
3 An individual’s deposits under the CPF Minimum Sum Scheme and his monies under the CPF Investment Scheme, placed with a DI Scheme member, will be aggregated and insured up to the S$50,000 cap.
4 This would include individual and group A&H insurance, and personal motor insurance.
5 For example, the guaranteed benefits of individual life policies and voluntary group policies will be aggregated and subject to caps of S$500,000 for sum assured and S$100,000 for surrender value on a per life assured per insurer basis (excluding annuities) while compulsory group policies will be subject to an aggregate cap of S$100,000 for sum assured and S$50,000 for surrender value on a per life assured per policy basis (excluding annuities). No caps will be applied to personal accident and A&H policies.